Royal Bank of Scotland fiasco shows the power of networks

The last week or so has seen complete mayhem in the Royal Bank of Scotland and its subsidiaries.  A computer glitch has caused their payments systems to collapse.  Monies have not been processed, 17 million customers have been unable to access their accounts and pay their bills.

The impact for RBS has been catastrophic.   So, an incident of this magnitude must surely have been caused by a massive event?  Perhaps the building containing the Bank’s main computers was burned to the ground?  Or the system was the victim of a malevolent cyber attack by a hostile power?  In fact, nothing like this took place at all.  It seems that an inexperienced operative in India accidently wiped information during a routine software upgrade.

In other words, a relatively trivial problem cascaded across the entire network and ‘went global’. 

This is not an issue which is specific to the RBS.  It is a fundamental feature of any system in which networks are important.  The classic example is outages in electricity supply systems, leading to huge blackouts.  Sometimes, there is indeed a major event which causes a major failure, such as a hurricane or ice storm destroying physical links in the system.  But all too often, it is a trivial failure which leads to a cascade across the system.

Most of the time, of course, the impact of small events is confined to their immediate locality and spread no further.  But it is the connected nature of networked systems which means that, in principle, even small events can have consequences on a scale up to and including the network as a whole.  The probability of any single small event causing a dramatic incident is very, very small.  But trivial problems occur on an almost daily basis in almost all systems.  So at any time, there is the potential for catastrophic failure.

In the scientific literature on the fundamental mathematical properties of networks, there is a jargon to describe this inherent property of networked systems.  They are ‘robust yet fragile’, a phrase initially coined by the top Caltech scientist John Doyle, way back (!) in the 1990s.  They are ‘robust’ in that small shocks, small problems, do not usually spread very far in the system.  But at the same time they are ‘fragile’.  A tiny adverse event can in principle bring the whole system down.

We see this principle very clearly in financial markets.  Think back to the banking credit crisis of the late summer of 2007, the harbinger of the major crash just over a year later.  At the end of June in 2007, there were few problems.  Voices were being raised about the problems of debt, but these were still very much in a minority.  The anxieties had not percolated across the network of banks, and their confidence in lending to each other.  Suddenly, this changed, and we had a major liquidity crisis.  Inter-bank lending collapsed, leading, very quickly to the demise of Northern Rock.  Not much had happened.  But negative sentiment suddenly cascaded across the banking network.

Companies must take these fundamental features of networks into account.  The potential problem extends far wider than financial markets.  Adverse comments, often with no basis in reality, about a firm and its products are posted all the time on the internet.  Most of the time, these do not get very far, often no further than the green-ink perpetrator of the comments.  But, very occasionally, a grievance, even one which is completely ill-founded, will get global traction and seriously damage a brand or even a whole company’s reputation.

One of the real cutting edge areas of scientific investigation on networks is how to spot at a very early stage when a comment has the potential to go global.  So defensive strategies are possible, firms are not powerless in our highly connected world.  But it is crucial that both firms and governments start learning the lessons of the networked world of the 21st century.

by Paul Ormerod

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Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.


Senior Partner

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Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.