CONSULTING SERVICES
POINT OF VIEW
TRADING INFORMATION MANAGEMENT: MOVING BEYOND ETRM Author: Austin Morris, managing partner, SunGard Consulting Services
Today’s energy trading and risk management (ETRM) systems offer a wealth of capability, with functionality covering the vast majority of the business processes of buying and selling commodities, from contract management through invoicing and accounting. Given that many of these systems are rarely fully integrated, few companies are able to answer fundamental business questions with them (such as P&L, deal profitability and asset performance) without considerable time and effort to manually consolidate data and extract key information and metrics. Today, organizations are recognizing that a fully integrated systems architecture, or trading information management (IM) platform, should be coupled with an effective business intelligence (BI) strategy and toolset. Without this partnership, it is very difficult for an energy or commodity trading firm to move beyond answering the most basic question about a trade – “what happened?” – and realize the benefits of knowing “why” it happened, and developing a strategy to answer the most difficult question requires a proactive strategy: “what will happen?”
The age of increasing scrutiny In order to implement a proactive business intelligence and information management strategy, firms must grapple with increased scrutiny imposed by regulators in an environment of increasingly active shareholder involvement where companies are turning their attention to regulatory accountability and financial performance. Proactively managing regulatory risks and improving financial performance requires operational and financial visibility, in near real-time, across the entire enterprise. Management must be able to quickly identify those business units, assets, or even deals that may negatively impact the business, slowing growth, reducing profitability or creating increased regulatory exposures. Without this depth of insight, optimization of operations and financial performance simply cannot be achieved. Most systems and architectures have been designed to capture the events of business – the contracts, deals, commodity movements and costs, and the accounting transactions that reflect those events. Unfortunately, even though much of the information related to any transaction may be present in the ETRM system, these solutions are many times not capable of answering whether those events lead to truly profitable outcomes, as the critical information stems from a number of other systems that may not be contained in the ETRM, such as tax, treasury, cost of capital, or credit management systems. Optimizing business operations first requires that information flow be optimized and integrated across all functional areas of the business, from deal origination through treasury, providing critical insight and enhanced capabilities in areas such as portfolio management, asset management, trend analysis and market and credit risk management. Achieving such capabilities requires the development and deployment of an IM platform that enables business intelligence and measurement of performance in all dimensions – across assets, business units, portfolios and time.
Optimizing financial performance Most companies that trade multiple commodities in multiple geographic markets maintain a variety of systems to capture their physical and financial transactions. Measuring financial performance, both realized and prospective, is difficult and error prone without consolidating data and information and having visibility into daily or intraday performance metrics simply cannot occur without a programmatic approach to information consolidation. With the deployment of an IM platform, trading firms can realize a daily P&L, providing a cross commodity and enterprise view of P&L, including full attribution to explain day-over-day P&L movements versus budget. In addition, it allows an organization to look at planned versus realized P&L and allows for an understanding of where the margin leakage is occurring. Further, by utilizing an IM platform, users gain a top-down and bottom-up granular view of transactions, enabling drill-down capability through the P&L to review deal profitability and ROI. This capability enables the analysis and optimization of complex commercial transactions, including structured and load-following bidding models, storage management and unit-level profitability. An IM platform provides true reporting of profitability, factoring all costs and burdens, down to specific deals or productive assets. IM can also ensure more accurate cash flow forecasting and variance analysis – consolidating and maintaining full operational cash and forecast information in a single location that is accessible across the organization. Fully deployed, an IM platform will provide integration across the enterprise, including deal capture systems, generation scheduling and actualization systems, fuel management, transmission scheduling and settlement systems to capture all sources of costs and revenue. Once in place, energy and commodity trading firms can realize the benefits of true business intelligence, driven by real-time reporting and analytics. Among those benefits:
››Optimized strategies reflecting enterprise goals ›› Achieving a ‘single version of the truth’ across the organization, providing offices and business units with one source of data that is trusted and accurate (fuel, tax, market, MTM, etc.)
››Daily P&L view from a realized and unrealized (balance of month) perspective ›› Consolidated operational cash and forecast information in one location for visibility across the organization
››Culture shift to an analytical environment versus a data-gathering and reporting environment ››More efficient accounting close processes ››Leveragability of information for pre-trading analytics and trading decision support ››Utilization information for regulatory and internal compliance ››Elimination of man hours associated with manual reconciliation efforts ››Rapid identification of exceptions via ‘slice and dice’ attribution capabilities ›› Ability to more accurately meet regulatory reporting requirements as well as have the history to review when reporting questions arise in the future
››Improved reaction time to market events and course correction thereof
Realizing the benefits of information management Given the complexities and breadth of the software products and tools utilized by trading organizations, implementation of an IM platform requires a methodical and incremental approach that balances the strategic enterprise vision of the ultimate solution with a tactical iterative deployment. As with any technology deployment, the process should begin with a vision and a plan, with a right-sized investment that best fits your company’s BI goals and established ROI target. Development and deployment should include a pilot “planning and proving” phase, preferably utilizing recognized technologies and models, to bolster credibility and show value to the business stakeholders. Once the value of the effort is fully established, leveraging the foundation should enable development to progress in a pragmatic, iterative manner; following an agile approach with a constant goal of providing rapid and measurable improvements. Finally, as new capabilities and value are delivered, an effective and efficient support system should already be in place, one that ensures success is sustained through continual improvement and adaptation as the business and its underlying models move forward through a dynamic and volatile market.
About SunGard Consulting Services SunGard Consulting Services helps financial services, energy and media companies solve business problems by managing their complex technology and operational needs. Focused on large scale data and process management, custom application development and systems integration, we combine business and technology consulting and managed services to deliver innovative custom solutions. We help our customers capitalize on and manage the consequences of business, technology and regulatory change. For more information, visit us at www.sungard.com/consulting.
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