ETRM is gradually becoming the need for energy companies. Moreover, the implementation is challenging.
FREMONT, CA: Energy companies engaging in the purchase and sale of commodities have implemented a purpose-built trading and risk management system. After adoption, several factors contribute to the increase in overall cost than initially anticipated. In multiple scenarios, companies opt to use an IT project as a medium for organizational and process change, which compounds the problem. Upon buying the software, the involvement of the technology delivery team escalates the cost. Before the kickoff of an IT project to implement an energy or commodity trading and risk management, spending time upfront and addressing specific themes can reduce the risk of budget and schedule overrun.
The objective behind implementing an energy trade and risk management (ETRM) system is to execute a commercial strategy to create value while ensuring adequate institutional control. A well-formed commercial plan commands how the organization will pursue value creation and how the function’scontribution will be measured. These factors can have an impact on ETRM application configuration, customization, and integration required to meet business goals.
Every business venture involves risk. Stakeholders anticipate few risks, while other risks must be managed with the company’s overall mandate and the support of an efficient commercial strategy. A robust risk management policy unveils risks, assigns ownership, suggest methods to delegate authority, define assessment methods, and identify useful tools. An independent refining and marketing company may set a goal of achieving the day of the refining margin. This goal indicates that commodity price volatility is an unacceptable risk for the refinery and must be managed. A hedging strategy and the risk policy selectedby the trading business will determine the use of quantities of specific instruments to mitigate the market price risk and achieve the pre-set day-of-refining margin goal.
Reporting is significant for trading control and risk management, which is done based on the primary control framework and external regulatory requirements. Formalizing and reporting according to the control and compliance obligations, will provide scope, cost, and schedule certainty. Implementing and energy or commodity trading and risk management technology system is a humongous task. Thus, business and IT leaders must set clear expectations from the ETRM.