Tag Archives: infrastructure

Cyber Dangers to Critical Infrastructure

Many critical infrastructure systems, such as those that control the electric grid, oil and gas refineries and transportation, are now getting linked to the internet. That makes them easier to manage and maintain but also could put them in the line of fire for cyber attacks.

I recently discussed the issues involved in upgrading and protecting these critical industrial control systems with Patrick McBride, chief marketing officer at Claroty, a startup that intends to secure the operational technology networks that run companies’ infrastructure systems. A few big takeaways from our conversation:

Old systems, new protections

When industrial systems were built, sometimes decades ago, no one considered the need for digital protections. “The systems were never designed, especially 10, 15, 20 years ago, with cybersecurity in mind,” McBride told me. Their primary design goals were the safety of the workers and the resilience of the systems, he said. “Security wasn’t even an afterthought. It wasn’t a thought.”

See also: How Tech Created a New Industrial Model  

Now, a new class of tools is coming online to help monitor these legacy systems. Using behavior analysis and anomaly detection, they are designed to catch intruders early in the attack life cycle. “Monitoring technology is going to play a huge part in this environment,” McBride said.

Mishmash of systems leaves exposures

Big industrial plants are careful about what they put on their networks, but some are putting wireless and other access points on systems as time-saving techniques to gather data more efficiently.

When organizations began to recognize the need for cybersecurity, some traditional IT security vendors repurposed existing technology, McBride said.That didn’t work particularly well, because in the industrial control systems, the networks speak to other kinds of protocols.“You’ve got a whole set of overwhelming business value from pulling data out of those plant systems and being able to provide that information back to the executive,” McBride said.

For example, there are a lot of Windows XP machines in industrial environments that keep air conditioning going, or run chemical manufacturing plants and refineries.

Potential for escalating industrial attacks

In December 2016, attacks on the Ukrainian power grid cut off a fifth of all electrical power in the capital city of Kiev. The purposeful takedown was attributed to Russia. The troubling fallout: Threat researchers around the world have found indications of the type of malware used in Ukraine on other energy and industrial companies’ networks, McBride said, showing that hackers are at least probing for vulnerabilities.

See also: It’s Time to Accelerate Digital Change  

But threats from nation-states are only one issue. “There are other categories that people are really starting to worry about. If you combined the ease at which it is to gain a foothold on these networks and the relative ease you can attack these systems, it’s not hard,” McBride said. “You don’t have to squint too hard to say … ‘Terrorist organizations might want to do this or buy expertise to help them do that.’”

This post originally appeared on ThirdCertainty.

Infrastructure: Risks and Opportunities

One of President Trump’s stated goals is to initiate significant investment in U.S. infrastructure — bridges, roads, airports, seaports, pipelines, fiber optic cables and water projects. As with any major spending measure — and the most common number being tossed around for this one is $1 trillion — there will be political hurdles. However, the U.S. House of Representatives Transportation and Infrastructure Committee just launched its #building21 campaign effort to promote its vision for 21st Century American infrastructure, calling for significant investment.

Infrastructure spending of such magnitude will bring many opportunities for construction and infrastructure companies. Organizations need to be strategically positioned to capitalize on the opportunity, well-prepared to engage in the heightened competition facing the industry and flexible enough to absorb an increasing level of risk.

Infrastructure Plans

In December 2015, Congress passed and President Obama signed the Fixing America’s Surface Transportation Act (the FAST Act), which increased the collection of gasoline taxes to pay for transportation infrastructure projects. The FAST Act authorized $305 billion for highway and motor vehicle safety, public transportation, motor carrier safety, hazardous materials safety, rail and research, technology and statistics programs. Although FAST Act funds are to be allocated to rehabilitate the country’s transportation network, there remains a significant infrastructure deficit in the country.

During his campaign, Trump called for $1 trillion in infrastructure investment in transportation, telecommunications, water, power and energy. Before his inauguration, Trump’s transition team circulated a list of 50 priority emergency and national security projects. Since then, Trump has given every indication that he plans to continue pushing to enhance infrastructure. For example, on Jan. 25, he signed an executive action related to one of the more controversial project proposals, a wall along the U.S.-Mexican border that many experts suggest would cost $15 billion to $25 billion.

See also: Insurtech Investment to Flourish in 2017  

Against the same funding challenges the Obama administration faced, Trump’s plan calls for much of the infrastructure investment to be driven by the private sector through a series of tax credits and private funding as a means to encourage infrastructure investment in a revenue-neutral fashion. Trump’s plan also calls for the relaxation of various regulations to accelerate project delivery times and reduce cost.

Challenges and Headwinds

Most Democrats and Republicans agree on the need to improve this country’s infrastructure. A key difference, however, is how to pay for the upgrades.

On Jan. 24, Senate Minority Leader Charles Schumer introduced a $1 trillion infrastructure plan that relies heavily on direct government funding rather than on tax credits and private investment. Democrats generally argue that, although tax breaks may encourage investment, they will not necessarily bring about those infrastructure projects that are most needed, because the underlying economics may not make such projects profitable.

Despite these political differences, it is likely that some form of Trump’s plan will secure support as infrastructure renewal is a common interest. If an infrastructure spending bill is passed by Congress, organizations in the construction and infrastructure industries will be affected in a number of ways, including:

  • Increased competition: With an economic slowdown in some areas of the world and with increasing volatility, a large inflow of foreign capital will likely occur as international contractors seek opportunities to invest in and build U.S. infrastructure projects. Consolidation of market share in the sector is also likely.
  • Talent and labor shortage: Already facing a shortage of skilled professionals, the construction industry will need to compete with other industries to attract and retain talent.
  • Private investment: Regardless of which infrastructure plan takes hold, public-private partnerships will be a pivotal model to deliver infrastructure in the immediate future. Consider that more than 30 states have enabling legislation in place and are poised to act immediately on already-identified projects.
  • Increased risk: We are witnessing an ever-increasing trend of infrastructure projects being delivered through complex delivery methods, including design-build; design, build, operate and maintain; and integrated delivery. All such contracts result in increased risk being assumed by contractors. With competition expected to heat up, contractors will be expected to have greater risk-bearing capacity. Another consideration is that infrastructure and construction companies are increasingly tied to the “Internet of Things” through operational technology, electronics, software and network connections; this brings significant cyber exposures. And infrastructure itself is increasingly a target of cyber criminals.
  • Risk financing: Insurers and others continue to develop new risk consulting and risk transfer products and services. Not only do insurers absorb performance and hazard risks associated with infrastructure development, they are increasingly becoming infrastructure investors, as well. It remains to be seen how this level of infrastructure exposure will lead to new products and services or new alternative risk structures.

See also: New Wellness Scam: Value on Investment  

The American Society of Civil Engineers (ASCE) estimates that the U.S. will face a $1.6 trillion infrastructure deficit in 2020. Although it is too early to know exactly how the new Congress and the Trump administration will proceed, we believe it’s safe to expect that infrastructure and development will be a hot topic this year and for many to come. If you’re not doing so already, now is the time to discuss with your advisers the risk and insurance considerations at the advent of a likely major U.S. infrastructure investment initiative.

The Real Powerhouses in Silicon Valley

One of the most important lessons that Silicon Valley learned, that gives it a strategic advantage, is to think bigger than products and business models: It builds platforms.

The fastest-growing and most disruptive powerhouses in history — Google, Amazon, Uber, AirBnb and eBay—aren’t focused on selling products; they are building platforms.

The trend goes beyond tech.  Companies such as Walmart, Nike, John Deere, and GE are also building platforms for their industries. John Deere, for example, is building a hub for agricultural products.

Platforms are becoming increasingly important as all information becomes digitized; as everything becomes an information technology and entire industries get disrupted.

A platform isn’t a new concept; it is simply a way of building something that is open and inclusive and has a strategic focus. Think of the difference between a roadside store and a shopping center. The mall has many advantages in size and scale, and every store benefits from the marketing and promotion done by others.

See Also: Pursue Innovation or Transformation

They share infrastructure and costs. The mall owner could have tried to have it all by building one big store, but it would have missed out on the opportunities to collect rent from everyone and benefit from the diverse crowds that the tenants attract.

Platform businesses bring together producers and consumers in high-value exchanges in which the chief assets are information and interactions. These interactions are the creators of value, the sources of competitive advantage.

The power of platforms is explained in a new book, Platform Revolution: How Networked Markets are Transforming the Economy and How to Make Them Work for You, by Geoffrey Parker, Marshall Van Alstyne and Sangeet Choudary. The authors illustrate how Apple became the most profitable player in the mobile space with the iPhone by leveraging platforms.

As recently as 2007, Nokia, Samsung, Motorola, Sony Ericsson and LG collectively controlled 90% of the industry’s global profits. And then came the iPhone with its beautiful design and marketplaces — iTunes and the App store. With these, by 2015, the iPhone had grabbed 92% of global profits and left the others in the dust.

Nokia Shutterstock

Nokia and the others had classic strategic advantages that should have protected them: strong product differentiation, trusted brands, leading operating systems, excellent logistics, protective regulation, huge R&D budgets and massive scale.

But Apple imagined the iPhone and iOS as more than a product or a conduit for services. They were a way to connect participants in two-sided markets — app developers on one side and app users on the other.

These generated value for both groups and allowed Apple to charge a tax on each transaction. As the number of developers increased, so did the number of users. This created the “network effect” — a process in which the value snowballs as more production attracts more consumption and more consumption leads to more production.

By January 2015. the company’s App Store offered 1.4 million apps and had cumulatively generated $25 billion for developers.

Just as malls have linked consumers and merchants, newspapers have long linked subscribers and advertisers. What has changed is that technology has reduced the need to own infrastructure and assets and made it significantly cheaper to build and scale digital platforms.

Traditional businesses, called “pipelines” by Parker, Van Alstyne and Choudary, create value by controlling a linear series of processes. The inputs at one end of the value chain, materials provided by suppliers, undergo a series of transformations to make them worth more.

pipes

Apple’s handset business was a classic pipeline, but when combined with the App Store, the marketplace that connects developers with users, it became a platform. As a platform, it grew exponentially because of the network effects.

The authors say that the move from pipeline to platform involves three key shifts:

  1. From resource control to orchestration. In the pipeline world, the key assets are tangible — such as mines and real estate. With platforms, the value is in the intellectual property and community. The network generates the ideas and data — the most valuable of all assets in the digital economy.
  2. From internal optimization to external interaction. Pipeline businesses achieve efficiency by optimizing labor and processes. With platforms, the key is to facilitate greater interactions between producers and consumers. To improve effectiveness and efficiency, you must optimize the ecosystem itself.
  3. From the individual to the ecosystem. Rather than focusing on the value of a single customer as traditional businesses do, in the platform world it is all about expanding the total value of an expanding ecosystem in a circular, iterative and feedback-driven process. This means that the metrics for measuring success must themselves change.

But not every industry is ripe for platforms because the underlying technologies and regulations may not be there yet.

See Also: InsurTech: Golden Opportunity to Innovate

In a paper in Harvard Business Review on “transitional business platforms,” Kellogg School of Management professor Robert Wolcott illustrates the problems that Netflix founder Reed Hastings had in 1997 in building a platform.

Hastings had always wanted to provide on-demand video, but the technology infrastructure just wasn’t there when he needed it. So he started by building a DVDs-by-mail business — while he plotted a long-term strategy for today’s platform.

According to Wolcott, Uber has a strategic intent of providing self-driving cars, but while the technology evolves it is managing with human drivers. It has built a platform that enables rapid evolution as technologies, consumer behaviors and regulations change.

Building platforms requires a vision, but does not require predicting the future. What you need is to understand the opportunity to build the mall instead of the store and be flexible in how you get there. Remember that business models now triumph products—and platforms triumph business models.

healthcare

Why to Start Small on Healthcare IT

In a recent article by CIO, the volume of healthcare data at the end of 2013 was estimated at just over 150 exabytes, and it is expected to climb north of 2,300 exabytes by 2020—a growth rate of 1,500% in just seven years.

In response, both healthcare payers and providers are increasing their investments in technology and infrastructure to establish competitive advantages by making sense of the growing pool of data. But key actionable insights—such as how to improve the quality of patient care, increase operational efficiency or refine revenue cycle management—are difficult to find. Core challenges surrounding data analytics (capturing, cleaning, analyzing and reporting) are complex and daunting tasks, both from a technical and subject matter perspective.

It’s no surprise, then, that many healthcare organizations struggle to make sense of this data. While the advent of big data technologies, such as Hadoop, provide the tools to collect and store this data, they aren’t a magic bullet to translate these heaps of information into actionable business insights. To do so, organizations must carefully plan infrastructure, software and human capital to support analysis on this scale, which can quickly prove to be prohibitively expensive and time-consuming.

But, by starting small in the new era of big data, healthcare organizations are able to create an agile and responsive environment to analyze data—without assuming any unnecessary risk. To do so, however, they must be able to answer three questions:

  1. What narrowly tailored problem has a short-term business case we can solve?
  2. How can we reduce the complexity of the analysis without sacrificing results?
  3. Do we truly understand the data? And, if not, what can we learn from the results?

To illustrate the effectiveness of starting small, consider two examples: that of a healthcare services provider looking to prevent unnecessary hospital visits and that of a large healthcare provider looking to universally improve revenue cycle operations after a three-practice merger.

The first example concerns an organization that specializes in care coordination. This particular organization consumes a sizeable volume of claims—often more than five million a month. And to supplement core operations (e.g. patient scheduling and post-visit follow-ups), it sought to answer a question that could carry significant value to both payers and providers: How can we reduce the number of unnecessary hospital visits? By digging even further, there was a more-refined question from payer and provider clients: Can we identify patients who are at a high risk for a return visit to the ER? Last, but not least, the organization eventually asked the key question many such big data projects fail to ask: Is there a short-term business case for solving this problem?

To answer the question, the organization considered all available data. Although the entire patient population would provide a significant sample size, it could potentially be skewed by various factors relating to income, payer mix, etc. So the organization decided to narrow the search to a few geographically grouped facilities and use this sample as a proof of concept. This would not only limit the volume of data analyzed but would also reduce the complexity of the analysis because it does not require more advanced concepts of control groups and population segmentation. The approach may also allow, if necessary, subject matter experts to weigh in from the individual facilities to provide guidance on the analysis.

The results returned from the analysis were simple and actionable. The service provider found that particular discharge diagnoses have comparatively high rates of return visits to the ER, often related to patients not closely following discharge instructions. And by providing the payers and providers this information, the service provider was able to improve the clarity of discharge instructions and drive post-discharge follow-ups to decrease the total number of unnecessary readmissions. The cost of unnecessary admissions was significant enough to grant further momentum to the small data project, allowing the project to expand to other regions.

In the second example (a large, regional healthcare services provider looking to improve revenue cycle operations), a similarly tailored question was posed: How can we improve revenue cycle efficiency by reducing penalties related to patient overpayments? At first glance, this seems to be a relatively small insight for traditional revenue cycle analyses. Questions that could potentially have a larger impact (Who owes me money now? Which payer pays the best rates for procedure XYZ?), could provide a larger payoff, but they would inevitably complicate the task of standardizing and streamlining data and definitions for all three practice groups.

However, the analysis would provide a jumping off point that would improve understanding of the data at a granular level. Not only was this regional provider able to create reports to identify delayed payments and prioritize accounts by the “age” of the delayed payment, it was able to better understand the underlying cause of the delayed payments. It was then able to adjust the billing process to ensure timely payments. Once again, timely payments significantly helped the working capital requirements of the organization by proving a rather short-term and significant business case. As a result, the small data project was expanded to include more complex revenue cycle management problems related to underpayment and claims related to specialty practices.

In both examples, the organizations deliberately started small—both in terms of the amount of data and the complexity of their approach. And by showing restraint and limiting the scope of their analyses, they were able to define a clear business case, derive actionable insights and gain momentum to tackle larger challenges faced by the organization.

infrastructure

New Approach to Risk and Infrastructure?

Globally, the World Economic Forum estimates that the planet is under-investing in infrastructure by as much as $1 trillion a year. Since 1990, for example, the global road network has expanded by 88%, but demand has increased by 218%.

With the global population continuing to grow – and urban populations, in particular – the pressure on existing infrastructure is only set to worsen. And in the developed world, that infrastructure is creaking: In the U.K., 11 coal-fired power stations are nearing 50 years old, the end of their operational lives, and replacements have yet to be built; in the U.S., the average age of the country’s 84,000 dams is 52 years old; in Germany, a third of all rail bridges are more than 100 years old; parts of London’s Underground rail system, still in daily use by hundreds of thousands of commuters, run through tunnels that are more than 150 years old.

According to the Report Card on America’s Infrastructure by the American Society of Civil Engineers (ASCE), the U.S. alone will need $3.6 trillion of infrastructure investment by 2020.  The report assigned near-failing grades to inland waterways and levees, and poor marks for the state of drinking water, dams, schools, road and hazardous waste infrastructure.

Europe’s infrastructure is in worse shape. The Royal Institute of International Affairs has suggested that the continent needs $16 trillion of infrastructure investment by 2030, more than any other region in a world.

Taxing Issues, Tragic Consequences

While taxes once covered the cost of building and maintaining public infrastructure, entitlement programs such as Social Security and healthcare have started to claim a larger share of these funds as a percentage of government tax revenue, particularly as the number of people in retirement has expanded.

In addition, as the cost of social programs grew, governments came under pressure to cut taxes, leaving even less money available to maintain existing infrastructure, let alone invest in the requirements of growing populations. “Too often infrastructure is seen only through the lens of cost, expenditure and not as core to society’s prosperity”, says Geoffrey Heekin, executive vice president and managing director, global construction and infrastructure, Aon Risk Solutions.

“Since the 1950s, investment in infrastructure in developed countries has been declining,” he says. “In the U.S., for example, investment as a percentage of GDP has fallen from around 5% to 6% in the 1950s to around 2% today.”

Tragically, train derailments, road closures, water main breaks and even bridge collapses have become commonplace. “Until situations like the water crisis in Flint or a bridge collapse happens, infrastructure does not hold proper weighting in the psyche of leaders in government,” Heekin says.

This lack of attention to infrastructure is costing developed economies billions of dollars in lost productivity, jobs and competitiveness. Without addressing the infrastructure investment gap, the U.S. economy alone could lose $3.1 trillion in GDP by 2020, according to the ASCE, while one estimate attributes 14,000 U.S. highway deaths a year to poorly maintained road infrastructure.

A Private Sector Solution to Public Sector Under-Investment?

To begin reversing the infrastructure gap, it is likely that governments will need to find ways to encourage private sector investment toward replacing, renewing and upgrading physical infrastructure.

Governments of all political stripes are increasingly supportive of private investment in infrastructure. One model that is now gaining attention is the Public Private Partnership (P3) model.

P3s in one form or another have been used successfully in developed countries for several decades. They are being used to procure everything from public healthcare facilities, schools and courthouses to highways, port facilities and energy infrastructure. While the volume and type of P3 deal can vary widely by country, there continues to be an upward trend for the model’s use by the public sector.

In 2015, for example, Canada procured 36% of its infrastructure with the P3 model. Aon Infrastructure Solutions anticipates that 21 P3 projects will close in Canada in 2016, with a total capital value of US$12.8 billion – the highest value of P3 projects in Canadian history. In the U.S., where adoption of the P3 model is less widespread, 11 projects are expected to close in 2016, with a capital value of US$8.7 billion.

Like traditional design-bid-build procurement, P3 projects involve public authorities’ putting public projects or programs up for competitive tender and selecting a preferred bidder from multiple consortia.

The key difference is that the contractual structure in P3 allows the public authority to transfer a different set of risks to the private party – including (but not always) the financing for the project. The arrangement can allow the private partner that designs, builds and finances construction of the asset to operate and maintain it in return for either a share of the revenue generated by the use of the asset, or a stream of constant payments from the public authority (also called availability payments).

Keeping Focused on the Big Picture

“The public sector benefits from P3 delivery when the model is applied to a project that meets a community need and is procured through a transparent, accountable process,” says Gordon Paul – senior vice president, Aon Risk Solutions and member of Aon Canada’s Construction Services Group executive committee and Aon’s  global PPP Centre of Excellence.

“Public authorities seek ‘value for money’ in a P3 project by looking to the long-term value,” Paul says. This means identifying whether the private sector party is able to design, build, finance, operate and maintain an infrastructure project for a price lower than if the public authority did it on its own over the same period. It’s about the full lifecycle of the project – not just the building costs.

Taking a big picture view is equally important for the private sector party, says Alister Burley, head of construction for Aon Risk Services Australia. He points to the importance of taking a holistic view to P3 projects and investments to enable efficiencies to be built that will carry forward.

If done right, P3 arrangements can be a significant benefit to both the public and private sectors. Public bodies gain a much-needed boost to their infrastructure, often with long-term maintenance included in the deal, reducing the potential negative economic and health consequences of infrastructure failure. And private investors can secure a stable, long-term return through a stake in some of the underlying essentials of our economies.

Whatever route governments take to secure the integrity of our underlying infrastructure, one thing is clear – without a significant increase in infrastructure investment over the coming years, the world’s economy and health could well be put at further risk.